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JPMorgan Chase reaches $4.5b settlement

The settlement over mortgage-backed securities that went bad covers 21 investors.
The settlement over mortgage-backed securities that went bad covers 21 investors.(EMMANUEL DUNAND/AFP/Getty Images)

JPMorgan Chase & Co. has reached a $4.5 billion settlement with investors over mortgage-backed securities.

The settlement, announced Friday, covers 21 major institutional investors, including competitor Goldman Sachs, BlackRock Financial Management, and Metropolitan Life Insurance Co. The mortgage-backed securities were sold by JPMorgan — the biggest US bank — and Bear Stearns between 2005 and 2008.

The deal is the latest in a series of legal settlements over JPMorgan’s sales of mortgage-backed securities in the years preceding the financial crisis. As the housing market collapsed between 2006 and 2008, millions of homeowners defaulted on high-risk mortgages.

That led to billions of dollars in losses for investors who bought securities created from bundles of mortgages. Those securities were sold by JPMorgan and other big Wall Street banks.

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New York-based JPMorgan has said that most of its mortgage-backed securities came from investment bank Bear Stearns and savings and loan Washington Mutual, troubled companies that JPMorgan acquired in 2008.

Separately, JPMorgan has been negotiating with the US Justice Department to settle a civil inquiry into its sales of mortgage-backed securities.

The bank reached a tentative deal last month to pay $13 billion, but the negotiations have hit a stumbling block.

As part of the $13 billion deal, $4 billion will resolve US government claims that JPMorgan misled mortgage finance giants Fannie Mae and Freddie Mac about risky mortgage-backed securities. That part of the deal was announced on Oct. 25.

Fannie and Freddie were bailed out by the government during the crisis and are under federal control.